Stock Market Flash on Infosys for 1QFY2012.

Stock Market Flash on Infosys for 1QFY2012

Infosys reported its 1QFY2012 results which were almost inline with our as well as street expectations. The revenues came in at US $1,671mn, up 4.3% qoq, on the back of 4.0% qoq volume growth. Onsite volume growth came in strong at 6.8% qoq and offshore volume growth came in at 2.7%. The cross-currency has benefited USD revenues by 1.2% qoq as the constant currency revenues came in at US$1,671mn, up 3.1% qoq. In rupee terms, revenues came in at `7,485cr, up 3.2% qoq. The EBITDA margin declined by 299bp qoq to 29.1% due to wage hikes given in 1QFY2012 (12-14% for offshore employees and 2-3% for onsite employees) effective from April 1, 2011. PAT stood at `1,722cr, down 5.4% qoq.

1QFY2011: Result highlights (IFRS, consolidated)

(` cr)	1QFY12	1QFY12E	% Var	4QFY11	% chg (qoq)	1QFY11	% chg (yoy)
Net revenue	7,485	7,435	0.7	7,250	3.2	6,198	20.8
EBITDA	2,175	2,178	(0.1)	2,324	(6.4)	1,962	10.9
EBITDA margin (%)	29.1	29.3	(23)bp	32.1	(299)bp	31.7	(259)bp
PAT	1,722	1,689	1.9	1,818	(5.3)	1,488	15.7
EPS (`)	30.1	29.6	1.8	31.8	(5.4)	26.1	15.6

Other key highlights:

·         Hiring remained decent with gross addition of 9,922 employees; however, net addition was just of 2,740 employees.

·         Attrition declined to 15.8% (LTM basis) vs. 17.0% in 4QFY2011

·         Utilisation (including trainees) inched up by 120bp to 69.6%. However, utilisation (excluding trainees) dipped by 30bp qoq to 74.9%.

·         In constant currency terms, geographies North America and Rest of the world grew by 5.1% and 2.4% qoq; however, Europe declined by 2.6% qoq

·         In constant currency terms, Industry segments like BSFI, Manufacturing and Retail & Lifesciences grew by 2.1%, 2.7% and 9.3% qoq; however, energy, utilities & communication declined by 1.4% qoq.

·         Client addition was modest at 26 clients this quarter, taking the total number of active client base to 628.

·         The FY2012, USD revenue growth guidance was left unchanged at 18-20% yoy to US$7.13- US$7.25bn, which was slightly disappointing. EPS guidance for FY2012 increased to US$2.88-US$2.92, yoy growth of 10-11.5% vs. previous guidance of 8-10% yoy growth.

·         2QFY2012 revenue growth guidance came in lower than our expectations at 3.5-5% qoq growth to US$1.73-1.75bn

Overall the results were modest with no surprises. However, the guidance numbers were disappointing indicating that management is banking on back ended growth which makes us cautious as the second half of every fiscal year is typically slow. We wait for managements’ clarity on client specific issues, if any, which may have led to erosion in revenues from Europe geography and also on their expectation about the nature and quantum of deals in pipeline for FY2012 given the unstable macros. The disconnect between macro and micro environment has been prevailing for quite sometime for Indian IT industry but Europe de-growth has been in sync with macro this time. We may downgrade our target price of `3,424 being cognizant of the effect of deteriorating macros.